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More millennials targeting affordable homes

June 28, 2018

The share of the housing market taken up by millennials today shows no signs of dwindling any time soon, as the improving economy and strong desire for homeownership among young adults is putting more of them in a position to buy a home. However, these would-be buyers are subject to unique market forces such as historically tight inventories in many markets, and prices rising beyond the highest levels ever seen in the market.

"Young adults seem to be targeting newly built, smaller homes."

Today, many young adults moving into the housing market seem to be targeting newly built, smaller homes for their property purchases, according to the latest Millennial Tracker from Ellie Mae. In April, nearly 9 in every 10 mortgages issued for millennials were for the purchase of new homes, pushing that share to the highest level observed since May 2017.

Affordability shifting?At the same time, the average loan value of those mortgages slipped to less than $188,200 - that was down from more than $192,000 in March, and $194,300 in February, the report said. This came as the average interest rate on mortgages issued to millennials rose to 4.73 percent from the previous month's 4.63 percent, and the highest level since the Millennial Tracker was created at the start of 2014.

"Most millennials are buying a house because there are major changes happening in their lives such as starting a family, getting a new job, or because they've decided that they want to build equity and stop renting," said Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae. "We believe millennial home purchases will continue to climb this summer and while interest rates may slightly impact the size of homes borrowers can get for their money, we don't foresee it impacting their desire to buy."

Where the action isIt should come as no surprise that millennials tend to be buying these properties en masse away from the largest and busiest metro areas in the country, and are instead settling in and around smaller cities, according to the latest data from Lending Tree. The three cities nationwide with the largest share of mortgage purchase applications being filed by millennials all hit at least 40 percent in February - Des Moines, Iowa (42.4 percent), Pittsburgh (41.9 percent), and Buffalo (40.5 percent).

Those homes also had relatively low values, even relative to the Fannie Mae data, the report said. The average loan amounts in those three cities ranged from just over $114,000 in Buffalo to less than $142,000 in Des Moines.

Certainly, it's worth noting that millennials may not be able to make more expensive home purchases as previous generations because of the ways in which they are saddled with student loans and other debts, according to DaveRamsey.com. In addition, those balances have likely hindered their ability to build a more sizable down payment, as has the rate at which wages have risen when millennials have been in the workforce, especially relative to home price increases.

With these issues in mind, it's worth noting that millennials are only likely to keep building momentum as they try to approach the housing market for some time to come.

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